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Amazon (AMZN) Up 1.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Amazon (AMZN). Shares have added about 1.7% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Amazon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Amazon's Q1 Earnings & Sales Beat Estimate

Amazon.com delivered first-quarter 2024 earnings of 98 cents per share compared with 31 cents in the year-ago quarter.

AMZN’s net income, totaling $10.4 billion, is inclusive of a pre-tax valuation loss of $2 billion in non-operating expenses associated with its investment in Rivian Automotive.

The adjusted bottom-line figure was $1.13 per share, topping the Zacks Consensus Estimate by 36.1%.

Net sales of $143.31 billion rose 13% year over year. The figure came closer to the higher end of the management’s guidance of $138-$143.5 billion and surpassed the Zacks Consensus Estimate of $142.53 billion.

Amazon witnessed a $0.2 billion impact of unfavorable fluctuations in foreign exchange rates.

Solid momentum across North America and International segments contributed well.

The growing momentum of the Amazon Web Services (“AWS”) segment contributed well.

Strength in the advertising business also benefited the company in the reported quarter.

AWS’s growing investments in generative AI are likely to continue aiding it in gaining momentum among cloud customers in the near term.

Amazon’s strong global presence, growing Prime momentum, improving Alexa skills, expanding smart device portfolio, and increasing efforts toward gaining strong traction among small and medium businesses are likely to drive its financial performance in the days ahead.

Top-Line Details

Product sales (42.5% of sales) increased 6.9% year over year to $60.9 billion. Service sales (57.5% of sales) rose 17.1% from the year-ago quarter to $82.4 billion.

By segment, North America revenues (60% of sales) rose 12% from the year-ago quarter to $86.3 billion, which beat the Zacks Consensus Estimate of $85.3 billion.

International revenues (22% of sales) increased 10% year over year to $31.9 billion, which missed the consensus mark of $32.7 billion.

AWS revenues (18% of sales) rose 17% year over year to $25.04 billion, which surpassed the consensus mark of $24.3 billion.

Strengthening relationships with third-party sellers remained another positive. In the reported quarter, sales generated by third-party seller services rose 16% on a year-over-year basis to $34.6 billion, which marginally beat the Zacks Consensus Estimate of $34.5 billion.

Sales from robust advertising services increased 24% year over year to $11.8 billion, which marginally lagged the consensus mark of $11.9 billion.

AMZN experienced year-over-year growth of 6% in its physical store sales, which were $5.2 billion in the reported quarter. The figure topped the consensus mark of $5.1 billion.

The company’s online store sales were $54.7 billion, up 7% year over year. The figure marginally lagged the Zacks Consensus Estimate of $54.8 billion.

Strength in Prime was a positive. Amazon witnessed 11% growth in its subscription services sales, which were $10.72 billion in the reported quarter. The figure beat the consensus mark of $10.68 billion.

Growing momentum with the Same-Day Delivery service worldwide was a positive. Also, the expanding original content and an international slate of content on Prime Video continued to accelerate Prime engagement.

Operating Details

Operating expenses were $128.01 billion, up 4.4% from the year-ago quarter. As a percentage of revenues, the figure contracted 690 basis points (bps) on a year-over-year basis to 89.3%.

The cost of sales, fulfillment and other operating expenses increased 7.1%, 6.8% and 2.2% year over year to $72.6 billion, $22.3 billion and $228 million, respectively.

Technology and infrastructure, sales and marketing, and general and administrative expenses were $20.4 billion, $9.7 billion and $2.7 billion, down 0.1%, 5% and 9.9% year over year, respectively.

Overall operating income was $15.3 billion compared with $4.8 billion in the year-ago quarter.

Operating income for AWS was $9.4 billion, up 83.9% year over year.

The North America segment reported an operating income of $4.98 billion compared with $898 million in the prior-year quarter. The International segment reported an operating income of $903 million against an operating loss of $1.2 billion in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2024, cash and cash equivalents were $72.9 billion, down from $73.4 billion as of Dec 31, 2023.

Marketable securities totaled $12.2 billion as of Mar 31, 2024, down from $13.4 billion as of Dec 31, 2023.

The long-term debt was $57.6 billion at the end of the reported quarter, down from $58.3 billion at the end of the previous quarter.

In the first quarter, AMZN generated $18.99 billion of cash from operations, down from $42.5 billion in the fourth quarter.

On a trailing 12-month basis, the operating cash flow came in at $99.1 billion. The free cash flow was $50.1 billion.

Guidance

For second-quarter 2024, Amazon expects net sales between $144 billion and $149 billion. Net sales are expected to grow 7-11% from the year-ago quarter’s reported figure.

Management projects an unfavorable foreign exchange impact of 60 bps.

Operating income is anticipated between $10 billion and $14 billion.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 9.18% due to these changes.

VGM Scores

At this time, Amazon has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Amazon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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